MAGNUM ENERGY INC. (the "Company") (TSX VENTURE: MEN) is pleased to
announce the results of its independent August 31, 2009 year-end
reserves evaluation prepared by Ryder Scott LLP ("Ryder Scott").
The report has been prepared on a Pro Forma basis and combines the
reserves actually owned by the Company on August 31, 2009 with the
reserves acquired effective July 1, 2009 ("Combined Reserves"). The
acquisition, which closed on October 20, 2009, includes 13 gross
(9.24 net) sections of land in the Sedalia area of Alberta with
existing natural gas production of 415 mcf/d (70 boe/d) and
associated gas processing facilities. The Company's Oil & Gas
Disclosure Filings for the fiscal year ended August 31, 2009 will
be released on SEDAR prior to November 30, 2009.
Summary of Reserves - Company Working Interest (before
royalties) August 31, 2009 Combined Reserves using Forecast Prices
and Costs
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Product Reserves Category
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Proved
Proved Developed Proved Total
Developed Non- Undev- Total Proved +
Producing Producing eloped Proved Probable Probable
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Oil - Barrels 12,509 Nil Nil 12,509 12,700 25,209
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NGL - Barrels 2,519 553 Nil 3,072 5,000 8,072
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Sales Gas - Mcf 2,035,609 2,725,686 Nil 4,761,295 4,316,553 9,077,848
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Summary of Net Present Value of Future Net Revenue Before Income
Taxes August 31, 2009 Combined Reserves using Forecast Prices and
Costs
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Future Net Revenue ($000) Before Income Tax
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Proved
Proved Developed Proved Total
Developed Non- Undev- Total Proved +
Producing Producing eloped Proved Probable Probable
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Undiscounted 10,403 12,292 Nil 22,695 21,330 44,025
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Discounted @ 5% 8,143 10,669 Nil 18,812 16,422 35,234
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Discounted @ 10% 6,687 9,393 Nil 16,080 13,162 29,242
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Discounted @ 15% 5,689 8,369 Nil 14,058 10,878 24,936
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Discounted @ 20% 4,967 7,534 Nil 12,501 9,209 21,710
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Magnum has had significant growth in its reserves in the past
year due to the successful drilling of three gas wells in the
Sedalia area and the subsequent acquisition of additional
production, lands and facilities. The wells and acquisition
(Combined) have resulted in an 820% increase in proved reserves and
a 929% increase in proved plus probable reserves as compared to
2008.
To view the graph accompanying this press release please visit
the following link:
http://media3.marketwire.com/docs/mag11232009.jpg
The prices used in the reserve report were Ryder Scott's
Forecast Prices as at August 31, 2009 as follows:
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Crude Oil Natural Gas Exchange
Edmonton AECO Rate
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Year (Cdn$/bbl) ($/mcf) ($US/$Cdn)
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2009 66.50 3.84 0.86
2010 71.00 6.10 0.86
2011 74.00 6.92 0.86
2012 76.00 7.44 0.86
2013 79.00 7.84 0.88
2014 81.00 7.94 0.90
2015 (1) 82.62 8.10 0.90
(1) thereafter, prices escalated at 2%; exchange rate constant at 0.90
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Reserve Life Index
Based on the forecast 2010 combined proved reserve production of
3300 mcfGE/day (550 boe/d), the Company's reserve life index is 4.1
years on a proved basis and 7.7 years on a proved plus probable
basis.
Finding and Development Costs
The Company's combined all-in finding and development costs for
2009 were $7.30 per boe for proved reserves and $4.34 per boe for
proved plus probable reserves. The three year weighted average
finding and development costs are $11.32 per boe for proved
reserves and $6.63 per boe for proved plus probable reserves.
Net Asset Value Before Tax
Based on the Ryder Scott determination of a 10% discounted
proved plus probable reserve value and Pro Forma (post closing) net
debt and shares outstanding, the net asset value per share is
determined as follows:
Proved Plus Probable Reserves Value $29.24 mm
Less: Net Debt 4.50 mm
Plus: Undeveloped Land & Seismic Value .10 mm
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$24.84 mm
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Basic Shares Outstanding 28.1 million
Fully Diluted Shares Outstanding 31.0 million
Net Asset Value Before Tax (Basic) $0.88 per share
Net Asset Value Before Tax (Fully Diluted) $0.80 per share
Operations Update and Outlook
During the three months ended August 31, 2009, the Company's
average production was 850 mcfGE/day (141 boe/d). The acquisition
of producing wells in the Sedalia area increased Magnum's
production to its current level of 1530 mcfGE/day (255 boe/d). The
acquisition also included sweet gas compression facilities capable
of processing 1300 mcf/day.
The Sedalia gas producing area accounts for 95% of the combined
estimated future net income of Magnum's reserves discounted at 10%.
The Company is in the process of enhancing the capacity of the gas
processing facility to enable it to access productive capacity
which is currently behind pipe in 100% owned wells. An additional
compressor has been acquired and will be in operation by the end of
November, 2009. The 100% Magnum owned expanded compression
facilities will be licensed to process up to 7.0 MMcf/day which
will ensure low operating costs and sufficient capacity for future
production growth in the Sedalia area.
As contemplated in the Ryder Scott report in the Proved
Developed Non-Producing reserve category, Magnum will perform seven
well operations before year end. Plans for the month of December
include three stimulations of producing zones, two new zone
completions and commingling in producing wellbores and two well
re-entry new zone completions. As a result of these operations and
the expanded facility capacity, the Company's total production is
anticipated to meet or exceed our calendar 2009 exit target of 3000
mcfGE/day (500 boe/d).
Reader Advisory
This news release and the documents referred to therein contain
certain forward-looking statements, including management's
assessment of future plans and operations and capital expenditures
and the timing thereof, that involve substantial known and unknown
risks and uncertainties, certain of which are beyond Magnum's
control. Such risks and uncertainties include, without limitation,
risks associated with oil and gas exploration, development,
exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations,
imprecision of reserves estimates, environmental risks, competition
from other producers, inability to retain drilling rigs and other
services, delays resulting from or inability to obtain required
regulatory approvals and ability to access sufficient capital from
internal and external sources, the impact of general economic
conditions in Canada, the United States and overseas, industry
conditions, changes in laws and regulations, including the adoption
of new environmental laws and regulations, and changes in how they
are interpreted and enforced, increased competition, the lack of
availability of qualified personnel or management, fluctuations in
foreign exchange or interest rates, stock market volatility and
market valuations of companies with respect to announced
transactions and the final valuations thereof, and obtaining
required approvals of regulatory bodies. Actual results could
differ materially from those expressed in or implied by these
forward-looking statements. No assurances can be given that any of
the events anticipated by any forward-looking statements will
transpire or occur, or if any of them do so, what benefits Magnum
will derive there from. Readers are cautioned that the foregoing
list of factors is not exhaustive. All subsequent forward-looking
statements, whether written or oral, attributable to Magnum or
persons acting on behalf are expressly qualified in their entirety
by these cautionary statements. The forward-looking statements
contained in this news release and the documents referred to
herein, are made as at the date of this news release, and Magnum
does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result
of new information, future events or otherwise, except as may be
required by applicable securities laws.
Petroleum and natural gas volumes are converted to an equivalent
measurement basis referred to as a "barrel of oil equivalent" (boe)
on the basis of 6 thousand cubic feet of natural gas equaling 1
barrel of oil. Petroleum and natural gas volumes have also been
presented in an equivalent measurement basis referred to a "million
cubic feet of gas equivalent" (MMcfGE) and a "thousand cubic feet
of gas equivalent" (mcfGE). These conversions are based on an
energy equivalency conversion method applicable at the burner tip
and do not necessarily represent a value equivalency at the
wellhead. Readers are cautioned that boe, MMcfGE and mcfGE figures
may be misleading, particularly if used in isolation.
ON BEHALF OF THE COMPANY
Richard Nemeth, President
The TSX Venture Exchange has neither approved nor disapproved
the contents of this press release.
Contacts: Magnum Energy Inc. Richard Nemeth President & CEO
604.669.3155 604.669.3177 (FAX) rnemeth@magnumenergyinc.com
www.magnumenergyinc.com
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